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Moody's casts doubt on France's administrative reforms

Monday, June 9, 2014

Claim by Prime Minister Manuel Valls that reforms could save France up to $34 billion are questioned by rating agency

PARIS (AA) - Moves by the French government to cut the number of the country's administrative regions will probably not help local communities achieve their budget cuts, according to the credit rating agency Moody's Investors Service.

French President Francois Hollande revealed on 3 June plans to cut the number of regions by more than a third, from 22 to 14.

The long-awaited reform will change regional boundaries in a purported effort to save money by streamlining the government.

Prime Minister Manuel Valls said in April that cutting the number of regions will save France up to €25 billion ($34 billion).

"We do not believe that these measures will generate savings for local authorities in the coming years, as these measures merely redistribute costs to other organs of the state," said Moody's analyst Daniel Marty in a statement.

- Elections postponed

In addition, the savings generated by reducing the number of local authorities would take time to materialize and it was not proven that the final costs would go down, said Marty.

Marty said the French government needed to save €28 billion ($38 billion) by 2017 and to find new short-term income if it was to meet EU rules on budget deficits.

Regional and departmental elections have been postponed from this year until late 2015 while the administrative changes take place.

The administrative units, referred to as "mille-feuille" (a French thousand-layer cake), include 22 regions, more than 100 departments and 36,000 communes.

- Efforts 'falling short'

There are also plans to merge some of France's 100-plus departments, according to the article.

The European Union's executive warned France on 2 June that its efforts to fix its public finances were falling short.

Under EU rules, budget deficits - the shortfall between income and spending - should not be more than 3 percent of annual gross domestic product.